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Education and human capital

Education shows great resilience to shocks—labor demand for highly skilled workers has remained high in all kinds of economic conditions. Public policy for education and human capital includes increasing the economic and social returns on education, fostering greater educational attainment, encouraging social and economic mobility, and providing vocational education, training, and lifelong learning.

The difference in educational attainment between
China's urban- and rural-born populations has widened in recent years, and
the relatively low educational attainment of the rural-born is a significant
obstacle to raising labor productivity. Rural-to-urban migration does not
create incentives to enroll in higher education as the availability of
low-skill employment in urban areas makes remaining in school less
attractive. In addition, the child-fostering and urban schooling
arrangements for children of migrants further inhibit human capital
accumulation.

Concerns exist that overeducation damages
employee welfare; however it is overeducation combined with overskilling
that is the real problem

Evidence shows that many college graduates are
employed in jobs for which a degree is not required (overeducation), and in
which the skills they learned in college are not being fully utilized
(overskilling). Policymakers should be particularly concerned about
widespread overskilling, which is likely to be harmful to both the welfare
of employees and the interests of employers as both overeducation and
overskilling can lead to frustration, lower wages, and higher quitting rates
while also being a waste of government money spent on education.

Unemployment rose only modestly during the Great
Recession and fell strongly since, with productivity and wages lagging
behind

Experiences during the Great Recession support
the view that the UK labor market is relatively flexible. Unemployment rose
less and recovered faster than in most other European economies. However,
this success has been accompanied by a stagnation of productivity and wages;
an open question is whether this represents a cyclical phenomenon or a
structural problem. In addition, the effects of the planned exit of the UK
from the EU (Brexit), which is quite possibly the greatest current threat to
the stability of the UK labor market, are not yet visible in labor market
statistics.

It is vital to measure language proficiency
well, as it crucially determines immigrants’ earnings

Over recent decades, Western countries have
admitted many immigrants from non-traditional regions (e.g. Philippines,
India, China), which has coincided with poor economic integration. Language
proficiency is an important determinant of economic integration; in addition
to being a component of human capital, it plays a key role in facilitating
the transmission of other components of human capital. Examining the
strengths and weaknesses of objective and subjective measures of language
proficiency is crucial for good integration policy, as is understanding the
relationship between these measures and earnings, a key indicator of
economic integration.

Teacher effectiveness has a dramatic effect on
student outcomes—how can it be increased?

Teacher effectiveness is the most important
component of the education process within schools for pupil attainment. One
estimate suggests that, in the US, replacing the least effective 8% of
teachers with average teachers has a present value of $100 trillion.
Researchers have a reasonable understanding of how to measure teacher
effectiveness; but the next step, understanding the best ways to raise it,
is where the research frontier now lies. Two areas in particular appear to
hold the greatest promise: reforming hiring practices and contracts, and
reforming teacher training and development.

Better educated parents invest more time and
money in their children, who are more successful in the labor market

Governments invest a lot of money in education,
so it is important to understand the benefits of this spending. One
essential aspect is that education can potentially make people better
parents and thus improve the educational and employment outcomes of their
children. Interventions that encourage the educational attainment of
children from poorer families will reduce inequality in current and future
generations. In addition to purely formal education, much less expensive
interventions to improve parenting skills, such as parental involvement
programs in schools, may also improve child development.

Economists have long believed that firms will not
pay to develop occupational skills that workers could use in other, often
competing, firms. Researchers now recognize that firms that invest in
apprenticeship training generally reap good returns. Evidence indicates that
financial returns to firms vary. Some recoup their investment within the
apprenticeship period, while others see their investment pay off only after
accounting for reduced turnover, recruitment, and initial training costs.
Generally, the first year of apprenticeships involves significant costs, but
subsequently, the apprentice's contributions exceed his/her wages and
supervisory costs. Most participating firms view apprenticeships as offering
certainty that all workers have the same high level of expertise and
ensuring an adequate supply of well-trained workers to cover sudden
increases in demand and to fill leadership positions.

There is a positive association between study
abroad and graduates’ job prospects, though it is unclear if the link is
causal

In recent decades, the number of university
students worldwide who have received some part of their education abroad has
been rising rapidly. Despite the popularity of international student
exchange programs, however, debate continues over what students actually
gain from this experience. A major advantage claimed for study abroad
programs is that they can enhance employability by providing graduates with
the skills and experience employers look for. These programs are also
expected to increase the probability that graduates will work abroad, and so
may especially benefit students willing to pursue an international career.
However, most of the evidence is qualitative and based on small samples.

Public education tends to crowd out parents’
time and money, but careful policy design may mitigate this

Many countries around the world are making
substantial and increasing public investments in children by providing
resources for schooling from early years through to adolescence. Recent
research has looked at how parents respond to children’s schooling
opportunities, highlighting that public inputs can alternatively encourage
or crowd out parental inputs. Most evidence finds that parents reduce their
own efforts as schooling improves, dampening the efficiency of government
expenditure. Policymakers may thus want to focus government provision on
schooling inputs that are less easily substituted.

Substance use reduces the academic performance of
university students

A non-trivial portion of traffic fatalities
involve alcohol or illicit drugs. But does substance use—which is linked to
depression, suicide, and criminal activity—also reduce academic performance?
Recent studies suggest that the consumption of alcohol has a negative effect
on the grades of university students. Likewise, there is evidence that
marijuana use reduces the academic performance of university students.
Although students who use illicit substances are more likely to drop out of
high school than those who do not, this may reflect the influence of other,
difficult-to-measure factors at the individual level, such as
personality.